CIE From Invention to Start-Up Cash Flow – More Important Than Your Mother   Alan Dishlip CFO – WildTangent, Inc. February...
Agenda <ul><li>Introduction </li></ul><ul><li>Financial Planning </li></ul><ul><li>Financial Projections </li></ul><ul><li...
Financial Planning - Understanding Risk <ul><li>Finance - a way to think about  cash, risk & value </li></ul><ul><ul><li>C...
Financial Planning 10 Must Answer Questions <ul><li>How much cash will we  really  need? </li></ul><ul><li>What do the 5 y...
Financial Projections Financial Projections
One angel to others on a cloud Don’t let this be you!
Financial Projections - Investor Quotes <ul><li>“ Financial projections consistently are the weakest part of business plan...
Projections - Overview <ul><li>A reflection of your business plan quantified </li></ul><ul><ul><li>Consistent with the pla...
Projections - Overview <ul><li>High level figures </li></ul><ul><ul><li>Underlying detail should be available  </li></ul><...
What’s Wrong With Most Financial Plans?   <ul><li>Waste too much ink on numbers –  </li></ul><ul><ul><li>Too little focus ...
What’s Wrong With Most Financial Plans? <ul><li>No need for detailed, month-by-month projections that stretch out for year...
Projection Assumptions <ul><li>Organize input assumptions in an easily accessible separate worksheet </li></ul><ul><ul><li...
Assumptions – Some to Consider <ul><li>Revenue by distribution channel </li></ul><ul><ul><li>Volume </li></ul></ul><ul><ul...
Projections – Assumptions Linking <ul><li>Assumption </li></ul><ul><li>Cost of Sales </li></ul><ul><li>Benefits & payroll ...
Bottoms Up Projections <ul><li>Build from low levels of detail </li></ul><ul><ul><li>Vs. Tops Down </li></ul></ul><ul><ul>...
Bottoms Up Projections <ul><li>Revenues </li></ul><ul><ul><li>Forecast sales at the lowest level of product or service det...
Bottoms Up Projections  Create Line Items that are  Activity Driven <ul><li>Don’t plan the dollars – plan the underlying a...
Projections Should be Integrated <ul><li>Enter assumptions and data and set up links </li></ul><ul><ul><li>The statements ...
Projections - Alternative Scenario Analysis <ul><li>Changing many assumptions for different strategy or business environme...
Projections - Plug Cash <ul><li>On the balance sheet </li></ul><ul><ul><li>Cash = [Total Liabilities + Equity]  minus </li...
Income Statement
Balance Sheet
Ratios and Metrics <ul><li>Ratios </li></ul><ul><ul><li>Gross margin % </li></ul></ul><ul><ul><li>Days sales in A/R; days ...
Other Information
Cash Planning Financial Projections
Understanding Cash <ul><li>First rule  : Cash is the most important resource </li></ul><ul><ul><li>More  cash is  better  ...
How Does Cash Planning Work? <ul><li>One part of financial statement forecasting </li></ul><ul><ul><li>Falls out of develo...
The Cash Flow Projection <ul><li>How cash flows  in & out  of your business </li></ul><ul><ul><li>Indicates capital invest...
Control Your Cash Flow <ul><li>Prepare realistic projections </li></ul><ul><li>Compare actual results to the plan </li></u...
Increasing Cash Flows <ul><li>Collect receivables </li></ul><ul><ul><li>Actively manage and quickly collect past dues </li...
Cash Reserve <ul><li>Always keep enough cash on hand to cover expenses for at least 3 months and, preferably more. </li></...
Cash Flow and Accounting Punch List <ul><li>Prepare monthly financial statements.  </li></ul><ul><ul><li>Compare with prio...
Cash Flow
Thoughts on Raising Capital <ul><li>Be prepared to concisely link the strategy & financial elements of your plan </li></ul...
Milestones <ul><li>Milestones and expected cost </li></ul><ul><ul><li>Shows business understanding and intention to track ...
The “Fully Funded” Folly A Customer Buys Fully Fund IPO (……….pray……………….) Capital Risk ( ß) Valuation Idea is Feasible Tec...
Capital Funding to Milestones aka “Old-Fashioned Venture Capital” Risk ( ß) Valuation Idea is Feasible Technology Works A ...
What is the planned &quot;Use of Proceeds&quot;? <ul><li>Investors want to know how their money is being deployed </li></u...
Summary <ul><li>Create value by managing risk </li></ul><ul><li>Communicate the business strategy in easily understandable...
Upcoming SlideShare
Loading in...5
×

PowerPoint (195 KB)

1,758

Published on

Published in: Economy & Finance, Business
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
1,758
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
42
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide
  • Understanding risk is a complex task, but significant value can be created by managing risk Financial risk is the total amount of uncertainty about future cash flows Uncertainty of future events creates risk, but uncertainty can usually be analyzed to understand risk Risk profiles vary depending on who bears the risk (e.g. some investors might not be able to diversify) Discount rates are used in finance to account for risk factors Estimating the “precise” discount rate or “technically correct” cost of capital might provide a false sense of security But this does not alleviate managers’ responsibility for estimating the opportunity cost of investing
  • Who you raise capital from is much more important than how much capital you raise Look for a business partner - not just money Friends, family and personal funds are usually the only source of capital available for new ventures Institutional venture capital is usually focused on second-rounds or larger ventures
  • PowerPoint (195 KB)

    1. 1. CIE From Invention to Start-Up Cash Flow – More Important Than Your Mother Alan Dishlip CFO – WildTangent, Inc. February 13, 2007 3:30 P.M. – 5:00 P.M.
    2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>Financial Planning </li></ul><ul><li>Financial Projections </li></ul><ul><li>Cash Planning </li></ul><ul><li>Raising Capital </li></ul><ul><li>Summary </li></ul>
    3. 3. Financial Planning - Understanding Risk <ul><li>Finance - a way to think about cash, risk & value </li></ul><ul><ul><li>Creating value is a key responsibility </li></ul></ul><ul><li>Financial risk - uncertainty about future cash flows </li></ul><ul><ul><li>Uncertainty creates risk, but uncertainty can usually be analyzed to understand risk </li></ul></ul><ul><ul><li>Significant value can be created by managing risk </li></ul></ul><ul><ul><ul><li>Market, Management, Technology, Competition </li></ul></ul></ul><ul><li>Finance does not answer questions </li></ul><ul><ul><li>It does not make decisions </li></ul></ul><ul><ul><li>Finance can help identify the right questions to ask and narrow down the options </li></ul></ul><ul><li>When viewed from the finance perspective, some decisions will turn out to be illogical or unfeasible. </li></ul>
    4. 4. Financial Planning 10 Must Answer Questions <ul><li>How much cash will we really need? </li></ul><ul><li>What do the 5 year financials look like? </li></ul><ul><li>What’s the path to profitability? </li></ul><ul><li>What are the risks and rewards? </li></ul><ul><li>How can these be managed successfully? </li></ul><ul><li>How large is the addressable market? </li></ul><ul><li>How fast is the market growing? </li></ul><ul><li>Who’s the management team? </li></ul><ul><li>What is the value of my company? </li></ul><ul><li>What is the exit strategy? </li></ul>
    5. 5. Financial Projections Financial Projections
    6. 6. One angel to others on a cloud Don’t let this be you!
    7. 7. Financial Projections - Investor Quotes <ul><li>“ Financial projections consistently are the weakest part of business plans.” </li></ul><ul><li>“ I rarely see a financial plan I can’t take apart quickly.” </li></ul><ul><li>“ No consistent formats” </li></ul><ul><li>“ Lack of detail – not bottoms up” </li></ul><ul><li>“ Unrealistic and overly optimistic assumptions – especially timing related (revenues, development schedule, cash flow break even)” </li></ul><ul><li>“ Model cannot be easily manipulated (too much hard wiring and not enough assumptions-driven)” </li></ul><ul><li>“ Omission of costs and balance sheet items” </li></ul><ul><ul><li>Understates capital requirements </li></ul></ul>
    8. 8. Projections - Overview <ul><li>A reflection of your business plan quantified </li></ul><ul><ul><li>Consistent with the plan strategy </li></ul></ul><ul><ul><li>Will help demonstrate whether your strategy is financially feasible </li></ul></ul><ul><ul><li>A key indicator of the amount of outside financing necessary to support the execution of your strategy </li></ul></ul><ul><li>Understand the quantitative and financial elements of your business plan </li></ul><ul><ul><li>Not doing so is the fastest way to lose credibility </li></ul></ul><ul><li>Include key financial ratios and compare to competitors’/industry averages </li></ul>
    9. 9. Projections - Overview <ul><li>High level figures </li></ul><ul><ul><li>Underlying detail should be available </li></ul></ul><ul><li>Projections should answer </li></ul><ul><ul><li>How will the company perform financially? </li></ul></ul><ul><ul><ul><li>P & L </li></ul></ul></ul><ul><ul><li>What will the company's cash position be? </li></ul></ul><ul><ul><ul><li>Cash Flow </li></ul></ul></ul><ul><ul><li>What will the company's financial position be? </li></ul></ul><ul><ul><ul><li>Balance Sheet </li></ul></ul></ul><ul><li>Five-years - integrated </li></ul><ul><ul><li>Monthly for the first two years, quarterly for the remaining 3 years </li></ul></ul><ul><ul><li>Well-thought out assumptions </li></ul></ul><ul><ul><li>Include key financial ratios and compare to competitors & industry </li></ul></ul><ul><ul><li>Include any historical financial information, if any </li></ul></ul>
    10. 10. What’s Wrong With Most Financial Plans? <ul><li>Waste too much ink on numbers – </li></ul><ul><ul><li>Too little focus on information that really matters </li></ul></ul><ul><ul><li>Numbers should support strategy and key drivers of success </li></ul></ul><ul><ul><ul><li>Manufacturing - yield on a production process </li></ul></ul></ul><ul><ul><ul><li>Magazine publishing - the anticipated renewal rate </li></ul></ul></ul><ul><ul><ul><li>Software - impact of using various distribution models </li></ul></ul></ul><ul><ul><ul><li>At what level of sales is the business profitable? </li></ul></ul></ul><ul><ul><ul><li>When does cash flow turn positive? </li></ul></ul></ul>
    11. 11. What’s Wrong With Most Financial Plans? <ul><li>No need for detailed, month-by-month projections that stretch out for years </li></ul><ul><li>Financials are typically wildly optimistic. </li></ul><ul><ul><li>Few entrepreneurs correctly anticipate how much capital and time will be required to accomplish objectives. </li></ul></ul>
    12. 12. Projection Assumptions <ul><li>Organize input assumptions in an easily accessible separate worksheet </li></ul><ul><ul><li>Helps identify key items in one place </li></ul></ul><ul><ul><li>Can be used for sensitivity and breakeven analysis </li></ul></ul><ul><li>Don’t be afraid to make material assumptions – especially uncertain ones (e.g. re-purchase rate, returns, collections cycle) </li></ul><ul><ul><li>Individualize </li></ul></ul><ul><ul><ul><li>e.g., don't just show advertising costs as a % of sales. </li></ul></ul></ul><ul><ul><ul><ul><li>Most advertising expenditures are made months before sales result </li></ul></ul></ul></ul><ul><ul><li>Include financial obligations of bringing your product/service to market </li></ul></ul><ul><ul><ul><li>New employees ► Deviations from historical trends </li></ul></ul></ul><ul><ul><ul><li>Additional physical space ► Increases in inventory and A/R </li></ul></ul></ul><ul><li>Support your assertions with valid data </li></ul><ul><ul><li>Identify what data you have and also be clear about what you don’t know </li></ul></ul>
    13. 13. Assumptions – Some to Consider <ul><li>Revenue by distribution channel </li></ul><ul><ul><li>Volume </li></ul></ul><ul><ul><li>Pricing </li></ul></ul><ul><ul><li>Sales per sales person </li></ul></ul><ul><li>Manpower plan </li></ul><ul><li>COGS detail (labor, material, overhead) </li></ul><ul><li>Expenses by department </li></ul><ul><ul><li>Dependent on manpower (payroll, space, benefits, supplies) </li></ul></ul><ul><ul><li>Independent of manpower (insurance, prof. fees, advertising, depreciation) </li></ul></ul><ul><li>Fixed assets purchases and depreciation </li></ul><ul><li>Debt and related collateral calculations </li></ul><ul><li>Interest income and expense </li></ul><ul><li>Ratios & Metrics </li></ul><ul><ul><li>Compare to industry averages and specific competitors </li></ul></ul><ul><li>Sensitivity Analysis </li></ul>
    14. 14. Projections – Assumptions Linking <ul><li>Assumption </li></ul><ul><li>Cost of Sales </li></ul><ul><li>Benefits & payroll taxes </li></ul><ul><li>Depreciation Exp </li></ul><ul><li>Headcount Driven Expenses </li></ul><ul><li>Interest Expense </li></ul><ul><li>Interest Income </li></ul><ul><li>Income Taxes </li></ul><ul><li>Net Profit </li></ul><ul><li>Accounts Receivable </li></ul><ul><li>Bad Debt Reserve </li></ul><ul><li>Inventories and Reserves </li></ul><ul><li>Balance Sheet Accruals </li></ul><ul><li>Linked to </li></ul><ul><li>Sales </li></ul><ul><li>Headcount & Salaries </li></ul><ul><li>Fixed Assets & Accum Dep </li></ul><ul><li>Manpower Plan </li></ul><ul><li>Specific Debt Instruments </li></ul><ul><li>Cash and Investments </li></ul><ul><li>Profit before Tax (w/ NOL) </li></ul><ul><li>Equity Section of Bal Sheet </li></ul><ul><li>Sales </li></ul><ul><li>Bad Debt Expense </li></ul><ul><li>COGS </li></ul><ul><li>Underlying Expenses </li></ul>
    15. 15. Bottoms Up Projections <ul><li>Build from low levels of detail </li></ul><ul><ul><li>Vs. Tops Down </li></ul></ul><ul><ul><ul><li>Revenues extrapolated from market size & share </li></ul></ul></ul><ul><ul><ul><li>Expenses are forecast as percentages of revenue </li></ul></ul></ul><ul><li>Start with line items that are relevant to describing the business model </li></ul>
    16. 16. Bottoms Up Projections <ul><li>Revenues </li></ul><ul><ul><li>Forecast sales at the lowest level of product or service detail (channel, sales person, region) </li></ul></ul><ul><ul><li>Assumptions of volume and pricing </li></ul></ul><ul><ul><ul><li>By geographic market, customer or distribution channel </li></ul></ul></ul><ul><li>Expenses </li></ul><ul><ul><li>Break into relevant categories </li></ul></ul><ul><ul><ul><li>Separate line items for most important and/or magnitude </li></ul></ul></ul>
    17. 17. Bottoms Up Projections Create Line Items that are Activity Driven <ul><li>Don’t plan the dollars – plan the underlying activities that drive profits and cash flow </li></ul><ul><li>Assumptions come from table above </li></ul><ul><ul><li>Don’t forget that productivity improves over time </li></ul></ul><ul><ul><li>Sales ramp over time </li></ul></ul><ul><ul><li>Understand the cost impacts </li></ul></ul><ul><ul><ul><li>By linking between selling activities, productivity assumptions and cost rates for the variable expenses </li></ul></ul></ul>Salaries, Commissions, Taxes, Benefits, T&E, Conferences 12 $1,000,000 per Sales Person $12,000,000 Related Costs No. Sales People Productivity Sales Target
    18. 18. Projections Should be Integrated <ul><li>Enter assumptions and data and set up links </li></ul><ul><ul><li>The statements build themselves according to GAAP </li></ul></ul><ul><li>P&L </li></ul><ul><ul><li>Segregate revenues, COGS, Op Ex, Income Taxes </li></ul></ul><ul><ul><ul><li>Subtotals for gross margin, operating profit, net income </li></ul></ul></ul><ul><li>Balance Sheet </li></ul><ul><ul><li>Segregate short- and long-term assets and liabilities </li></ul></ul><ul><ul><li>Account for retained earnings and equity capital </li></ul></ul><ul><li>Cash Flow </li></ul><ul><ul><li>Tie out to balance sheet </li></ul></ul><ul><ul><li>Segregate operating, investing and financing activities </li></ul></ul>
    19. 19. Projections - Alternative Scenario Analysis <ul><li>Changing many assumptions for different strategy or business environment </li></ul><ul><ul><li>Vs. Sensitivity where change an individual assumption to reveal financial impact </li></ul></ul><ul><li>Examples </li></ul><ul><ul><li>Alternate distribution channels strategy </li></ul></ul><ul><ul><li>Timing issues (sales or development delayed) </li></ul></ul><ul><ul><li>Alternate volumes and pricing </li></ul></ul><ul><li>Use this to run your business!! </li></ul>
    20. 20. Projections - Plug Cash <ul><li>On the balance sheet </li></ul><ul><ul><li>Cash = [Total Liabilities + Equity] minus </li></ul></ul><ul><li>[Total Assets other than Cash] </li></ul><ul><li>If cash is negative, the company is undercapitalized </li></ul><ul><ul><li>Need to raise equity capital or borrow or both </li></ul></ul><ul><li>If cash is positive and growing, the company is generating positive cash flow </li></ul><ul><li>Identifies seasonality needs </li></ul>
    21. 21. Income Statement
    22. 22. Balance Sheet
    23. 23. Ratios and Metrics <ul><li>Ratios </li></ul><ul><ul><li>Gross margin % </li></ul></ul><ul><ul><li>Days sales in A/R; days sales in inventory </li></ul></ul><ul><ul><li>Current Ratio & quick ratio </li></ul></ul><ul><ul><li>Debt to equity </li></ul></ul><ul><ul><li>EBITDA </li></ul></ul><ul><li>Metrics </li></ul><ul><ul><li>Headcount </li></ul></ul><ul><ul><li>Sales per employee </li></ul></ul><ul><ul><li>Sales per sales person </li></ul></ul><ul><ul><li>Customer acquisition cost </li></ul></ul><ul><ul><li>Unique ratios to your business </li></ul></ul><ul><li>Show trends and compare to similar companies </li></ul>
    24. 24. Other Information
    25. 25. Cash Planning Financial Projections
    26. 26. Understanding Cash <ul><li>First rule : Cash is the most important resource </li></ul><ul><ul><li>More cash is better than less cash </li></ul></ul><ul><ul><li>Cash now is better than cash later </li></ul></ul><ul><li>Focus on cash flow versus accounting income </li></ul><ul><li>Growth often absorbs cash flow because of a higher need for working capital and fixed investments </li></ul><ul><ul><li>Entrepreneurial firms with negative income and high growth can have a very fast cash burn rate </li></ul></ul><ul><ul><li>Today’s investments are tomorrow’s growth opportunities </li></ul></ul><ul><li>Focus on the dynamic picture of cash flow </li></ul><ul><ul><li>Cash cycles (A/R collections, A/P payments), seasonality </li></ul></ul><ul><li>Last rule : CFIMITYM !!! </li></ul><ul><ul><li>Cash Flow is More Important Than Your Mother!! </li></ul></ul><ul><ul><li>DON’T RUN OUT of CASH!! </li></ul></ul>
    27. 27. How Does Cash Planning Work? <ul><li>One part of financial statement forecasting </li></ul><ul><ul><li>Falls out of developing the Income Statement and Balance Sheet </li></ul></ul><ul><li>Goal: Provide well-balanced cash flow (ins & outs) </li></ul><ul><li>Understand the Operating Cycle (“OC”) </li></ul><ul><ul><li>The OC is the system through which cash flows (purchase inventory, collect A/R, expenses, loan borrowing & payments). </li></ul></ul><ul><ul><ul><li>Measures flow of assets into cash. </li></ul></ul></ul><ul><ul><li>Need to finance a continuous OC </li></ul></ul><ul><li>Cash flow analysis shows whether daily operations generate enough cash to meet obligations. </li></ul><ul><li>Compare actual cash flow to plan </li></ul><ul><ul><li>Analysis allows opportunity to prepare for growth and fine tune plan </li></ul></ul>
    28. 28. The Cash Flow Projection <ul><li>How cash flows in & out of your business </li></ul><ul><ul><li>Indicates capital investment requirements </li></ul></ul><ul><li>Components </li></ul><ul><ul><li>From operations </li></ul></ul><ul><ul><ul><li>Net income or loss (revenues, expenses) </li></ul></ul></ul><ul><ul><ul><li>Changes in operating assets and liabilities (A/R, A/P, Prepaid Expenses, Accrued Expenses) other than cash </li></ul></ul></ul><ul><ul><li>From Investing </li></ul></ul><ul><ul><ul><li>Property & equipment </li></ul></ul></ul><ul><ul><li>From Financing </li></ul></ul><ul><ul><ul><li>Long and short-term debt </li></ul></ul></ul><ul><ul><ul><li>Issuance of equity </li></ul></ul></ul>
    29. 29. Control Your Cash Flow <ul><li>Prepare realistic projections </li></ul><ul><li>Compare actual results to the plan </li></ul><ul><ul><li>Identify patterns and constantly refine projections </li></ul></ul><ul><ul><li>Investigate variances and make operating changes, if necessary </li></ul></ul><ul><ul><li>Spend most time in areas you can make quick and large impact </li></ul></ul><ul><ul><ul><li>A/R, A/P, Inventory, Discretionary Expenses </li></ul></ul></ul>
    30. 30. Increasing Cash Flows <ul><li>Collect receivables </li></ul><ul><ul><li>Actively manage and quickly collect past dues </li></ul></ul><ul><ul><li>Shortens operating cycle </li></ul></ul><ul><ul><li>However, increasing sales (on credit), actually decreases cash flow (timing of collection and purchase of inventory) </li></ul></ul><ul><li>Tightening credit requirements </li></ul><ul><ul><li>More cash sooner </li></ul></ul><ul><ul><li>But may cost in less sales </li></ul></ul><ul><ul><li>Need the proper balance </li></ul></ul><ul><li>Pricing </li></ul><ul><ul><li>Proper pricing is critical to achieving a profit and maintaining positive cash flow </li></ul></ul><ul><ul><li>Must understand market, competition and distribution channels structure </li></ul></ul><ul><li>Manage your expenses – necessary and reasonable </li></ul>
    31. 31. Cash Reserve <ul><li>Always keep enough cash on hand to cover expenses for at least 3 months and, preferably more. </li></ul><ul><ul><li>Provides cushion against “unknown unknowns” </li></ul></ul><ul><li>But don’t keep too much in cash </li></ul><ul><ul><li>Invest excess in interest bearing instruments with priority: </li></ul></ul><ul><ul><ul><li>Safety (gov’t securities, CDs, etc.) </li></ul></ul></ul><ul><ul><ul><li>Liquidity </li></ul></ul></ul><ul><ul><ul><li>Return </li></ul></ul></ul>
    32. 32. Cash Flow and Accounting Punch List <ul><li>Prepare monthly financial statements. </li></ul><ul><ul><li>Compare with prior periods. </li></ul></ul><ul><li>Frequently update your projections and cash flow plan. </li></ul><ul><li>Keep track of key income statement percentages. </li></ul><ul><ul><li>If you're in manufacturing, your COGS % should be relatively the same or better as competitors in your industry. </li></ul></ul><ul><li>Maintain good internal controls to prevent dishonesty and shrinkage. </li></ul><ul><li>Do not delegate the authority to sign checks or purchase orders. </li></ul><ul><li>Don't use money that you have withheld for payroll taxes or sales taxes for other purposes. </li></ul><ul><ul><li>A &quot;payroll service provider&quot; can be used to manage these responsibilities. </li></ul></ul><ul><li>Liquidity is not the same as making money. </li></ul><ul><ul><li>You can be making a profit and still go broke by running out of cash. Learn and practice cash flow control . </li></ul></ul><ul><li>Arrange for financing well before the need arises. </li></ul>
    33. 33. Cash Flow
    34. 34. Thoughts on Raising Capital <ul><li>Be prepared to concisely link the strategy & financial elements of your plan </li></ul><ul><ul><li>Milestone-based </li></ul></ul><ul><li>Raising capital is a long, hard and challenging process that requires a substantial time & effort </li></ul><ul><li>Who you raise capital from is much more important than how much capital you raise </li></ul><ul><li>Listen, learn & improve your plan along the way </li></ul><ul><li>Have realistic expectations about how much money you can raise and have a “plan B” </li></ul><ul><li>Friends, family & personal funds are usually the only source of capital available for new ventures </li></ul>
    35. 35. Milestones <ul><li>Milestones and expected cost </li></ul><ul><ul><li>Shows business understanding and intention to track performance closely against the business plan </li></ul></ul><ul><li>Milestone Examples </li></ul><ul><ul><li>Hiring of a full management team </li></ul></ul><ul><ul><li>Completing product specifications </li></ul></ul><ul><ul><li>Completing prototype </li></ul></ul><ul><ul><li>Product testing </li></ul></ul><ul><ul><li>First customer shipment </li></ul></ul><ul><ul><li>First full quarter of profitability </li></ul></ul><ul><ul><li>Achieving $X million in revenue </li></ul></ul>
    36. 36. The “Fully Funded” Folly A Customer Buys Fully Fund IPO (……….pray……………….) Capital Risk ( ß) Valuation Idea is Feasible Technology Works
    37. 37. Capital Funding to Milestones aka “Old-Fashioned Venture Capital” Risk ( ß) Valuation Idea is Feasible Technology Works A Customer Buys Seed Funding R&D Capital Go-to-Market Capital Expansion Capital P(success) = 30% Req’d IRR = 100% P(success) = 40% Req’d IRR = 70% P(success) = 50% Req’d IRR = 50% P(success) = 80% Req’d IRR = 30%
    38. 38. What is the planned &quot;Use of Proceeds&quot;? <ul><li>Investors want to know how their money is being deployed </li></ul><ul><ul><li>Capital to invest in sales/market growth </li></ul></ul><ul><ul><ul><li>What will it allow you to accomplish? </li></ul></ul></ul><ul><ul><li>When will your company break even in terms of profitability and cash flow? </li></ul></ul><ul><li>The ultimate goal is to reach an exit scenario </li></ul><ul><ul><li>Profitable businesses are more attractive to potential buyers or public markets </li></ul></ul>
    39. 39. Summary <ul><li>Create value by managing risk </li></ul><ul><li>Communicate the business strategy in easily understandable and believable financial terms </li></ul><ul><ul><li>Strategy & Financials - complementary and consistent </li></ul></ul><ul><li>Projections need to be realistic and believable </li></ul><ul><ul><li>Focus on information that really matters </li></ul></ul><ul><ul><ul><li>Numbers should support strategy and key drivers of success </li></ul></ul></ul><ul><ul><li>Integrate assumptions and statements </li></ul></ul><ul><ul><li>Bottoms Up approach </li></ul></ul><ul><ul><li>Funding milestones within cash and revenue projections </li></ul></ul><ul><ul><li>Reduce risks of the business </li></ul></ul><ul><ul><ul><li>Funding milestones Especially mng’t quality and experience </li></ul></ul></ul><ul><li>Understand the Operating Cycle </li></ul><ul><li>Don’t run out of Cash!! </li></ul>►
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×